Between a Rock and a Hard Place

Kegler Brown Construction NewsletterMarch 1, 2004by Don Gregory

Forum Selection Clauses v. State Statutes Prohibiting Such Clauses
Many states (including Ohio) have recently enacted statutes that require construction-related litigation be conducted in the state where the project is located. Many construction contracts contain forum selection clauses requiring that the drafter's state law apply and that litigation must be commenced in a state far from the construction project. Both forum selection clauses and the number of states passing statutes restricting the use of forum selection clauses in construction cases (and mandating litigation where the project is located) are on the rise. Complicated legal issues can be involved when the two are juxtaposed.

The general issue was addressed by the landmark U.S. Supreme Court case of The Bremen et al. v. Zapata Off-Shore Co., 407 U.S. 1 (1972), where the Court explained that if the forum selection clause violates public policy, then the forum selection clause must give way. However, in cases interpreting the Miller Act, which mandates that federal public projects be brought in the judicial district where the contract was performed "and not elsewhere," courts have upheld the forum selection clauses in the contract and not the Miller Act's jurisdictional provisions.

Accordingly, the key issue is whether the state and federal courts will enforce the state statutes or defer to the contract. Two recent cases have dealt with this issue. In Florida, in Kerr Construction, Inc. v. Peters Contracting, Inc., 767 So.2d 610 (Fla. 5th DCA 2000), the court invalidated a venue selection clause in a case that involved a Florida construction project with a venue selection provision requiring litigation in another state. The Florida court invalidated the contract provision based upon Florida's construction jurisdictional statute. In McCloud Construction, Inc. v. Home Depot U.S.A., Inc., 149 F.Supp.2d 695 (E.D. Wis. 2001), the federal court threw out a forum selection clause requiring litigation in Georgia based upon Wisconsin's public policy prohibiting forum selection clauses requiring litigation in another state. Nevertheless, there is some risk that when an owner or contractor files first in the state where the contract says the dispute should be heard that the Court will find the "home rule statute" inapplicable.

Therefore, contractors and subcontractors should not presume that contract language (mandating that another state's law or courts apply) is unenforceable and should instead strike such language and require application of the courts and law where the project is located.